PNM Resources (PNM)

Q4 2011 Earnings Call

February 29, 2012 11:00 am ET

Executives

Lisa Eden -

Chuck Eldred - Chief Financial Officer and Executive Vice President

Analysts

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Maurice E. May - Power Insights

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to your PNM Resources Fourth Quarter Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn this conference call Lisa Eden, Director of Investor Relations. You may begin.

Lisa Eden

Thank everyone for joining us this morning for a discussion of the company's 2011 Fourth Quarter and Year-End Earnings Conference Call. Please note that the presentation for this conference call and supporting documents are available on PNM Resources website at pnmresources.com.

Joining me today are PNM Resources Chairman, President and CEO, Pat Collawn; and Chuck Eldred, our CFO; as well as several members of our executive management team.

Before I turn the call over to Pat, I need to remind you that some of the information provided this morning should be considered forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995. We caution you that all of the forward-looking statements are based upon current expectations and estimates, and that PNM Resources assume no obligation to update this information.

For a detailed discussion of factors affecting PNM Resources' results, please refer to our current and future annual reports on Form 10-K and the quarterly reports on Form 10-Q, as well as current reports and future reports on Form 8-K filed with the SEC.

With that, I will turn the call over to Pat.

Chuck Eldred

And thank you, Pat, and good morning to everyone. As Pat described, 2011 was a true transitional year for PNM Resources. We've had a long journey of evolving and executing the strategic vision of the company. Looking back over the past several years, we sold our gas business, reinstated our fuel costs and moved merchant plants into rate base, not to mention having achieved a number of rate increases totaling more than $200 million between PNM and TNMP. 2011 also marks our exit of the competitive businesses and resulted in a further strengthening of our balance sheet and improved credit ratings.

Going forward, we are a regulated utility with a strong focus on earning our allowed returns. As we discussed in our guidance call in December, we have a number of areas that we'll be concentrating on including adding to our rate base and working to improve the returns and our FERC generation and transmission businesses at PNM.

Now turning to Slide 9. As you read in the news release, ongoing earnings were $0.22 for the fourth quarter of 2011. This was a $0.25 increase year-over-year. The majority of the improvement came from PNM and TNMP for a combined total of $0.16 and was largely driven by rate relief. Another factor was the fourth quarter 2010 loss at Optim of $0.05 for which there was no comparable activity this quarter due to the exit of the business.

Our full-year 2011 ongoing earnings were $1.08, up $0.21 from 2010. We exceeded our guidance range by $0.03 primarily because of the cold weather in December. PNM and TNMP were the major contributors to the improvement in earnings, and I'll cover the drivers for those businesses in a moment. The corporate and other segment was up $0.06 year-over-year, primarily because in 2010, we impaired some production tax credits related to our wind farm tax investment that we do not expect to utilize before they expired due to our NOL position through 2013. Another favorable driver was reduced interest expense related to the $50 million debt repurchase in November 2011. Optim accounted for another $0.04, which was offset by a decrease year-over-year from First Choice Power of $0.19. The hot summer in Texas had a favorable impact on Optim and a negative impact on First Choice. Remember the 2011 results were Optim and First Choice Power do not reflect those operations for the entire year. Optim has shown through August 31 and First Choice through October 31.

Now turning to Slide 10. PNM was up $0.18 year-over-year. Rate relief accounted for an improvement of $0.21, and lower outage costs improved EPS by $0.10 year-over-year. Load growth added $0.04, and weather was $0.03 year-over-year. Our cost control efforts accounted for $0.02 in 2011. We have been able to implement a number of cost saving measures in 2011 including process improvements in labor reductions. These savings have been large enough to offset other increases in our business such as higher depreciation and property tax expense related to planned additions and right away costs and still result in a net improvement to the bottom line.

The realized gains in our nuclear decommissioning trust contributed another $0.05. You will recall that portfolio management activities of the Nuclear Decommissioning Trust occasionally affect our earnings but are not a consistent driver for us. These increases were partially offset by the expiration of the Palo Verde tolling agreement, which is down $0.27 year-over-year.

TNMP was up $0.12 year-over-year and also had improved results due to rate relief. This accounted for $0.08 of the change. Weather contributed $0.03 and load $0.01 year-over-year.

Now turning to Slide 11. As you saw in earnings release this morning, we have announced a dividend increase of 16% to an annual rate of $0.58 per share. This is the first change in our dividend since 2008 and demonstrates our confidence in our earnings now that we have shifted toward and more regulated and less volatile business model. We expect this increase to be the first step in moving the dividend payout ratio toward a long-term target of 50% to 60% of ongoing earnings. The board will continue to evaluate the dividend each year considering sustainability, growth, capital planning and industry standards as they determine the annual payout.

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